The new Jefferies report indicates that the global investment cycle in artificial intelligence (AI) may have peaked or entered a mid-term correction. Rising financing costs and concerns about the returns on large investments may negatively impact technology investments in the coming year.
Concerns About Technological Investments
The report suggests that financial markets are increasingly showing reluctance to finance AI-related investments, raising questions about the sustainability of costs for major U.S. technology companies. Jefferies noted in its report that it appears the investment cost cycle in AI has peaked or at least entered a mid-term correction.
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Four major technology companies, including Microsoft, Amazon, Alphabet, and Meta, have increased their combined investment costs by 108% year-over-year to reach $202 billion in the third quarter of 2026. However, rising concerns about financing and profitability may mean that AI-related investment costs in 2027 will be lower than current market forecasts.
Impact on U.S. Economic Growth
Jefferies pointed out that AI-related investments account for 1.39% or 67% of the 2.1% growth in real GDP in the U.S. over the four quarters up to the third quarter of 2026. Additionally, with rising borrowing costs for technology companies, the widening yield spread on bonds and the sharp increase in credit swap spreads for Oracle and CoreWeave are concerning.
The report also predicts that the credit-induced slowdown in AI spending could negatively impact U.S. economic growth and shift expectations of Federal Reserve policies from monetary tightening to easing.
Furthermore, Jefferies has advised investors to look for opportunities beyond the AI supply chain, particularly in healthcare and biotechnology, where AI applications in drug development offer significant potential.
In terms of regional asset allocation, Jefferies has increased India's weight in its relative return Asia-Pacific portfolio to 14% and maintained an "overweight" position. This weight was previously 12%. Allocations to South Korea and Taiwan have each decreased by 1%, maintaining an "underweight" position in both markets.
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